Teamunit Pty Limited v Chugh

[2009] NSWDC 308

CITATION:	Teamunit Pty Limited v Chugh [2009] NSWDC 308
HEARING DATE(S):	12 October 2009
EX TEMPORE JUDGMENT DATE:	16 October 2009
JURISDICTION:	District Court - Civil
JUDGMENT OF:	Sidis DCJ
DECISION:	1. Verdict and judgment for the plaintiff on the plaintiff’s claim in the sum of $333,421. 2. Each party is to pay its own costs of the proceedings involving the plaintiff’s claim. 3. Verdict for the cross defendant on the cross claim. 4. The cross claimant is to pay the cross defendant’s costs of those proceedings. 5. The exhibits are returned.
CATCHWORDS:	CONTRACT - Dispute as to terms of payment - Credit - Whether release extended to past annual leave entitlements - Whether defendant mislead or deceived into signing varying deed
PARTIES:	Teamunit Pty Limited (Plaintiff) Harvi Chugh (Defendant)
FILE NUMBER(S):	2810/08
COUNSEL:	Mr Robinson (Plaintiff) D Allen (Defendant)
SOLICITORS:	Holding Redlich (Plaintiff) Hancocks Solicitors (Defendant)

JUDGMENT

1 On 29 June 2007 Teamunit Pty Limited, the plaintiff, entered into a share purchase agreement pursuant to which it sold its shares in a number of companies operating various businesses to Centric Wealth Pty Limited. Prior to the sale of its shares the plaintiff employed Harvi Chugh, the defendant, as its Chief Executive Officer. The defendant was also a director of the plaintiff. As a part of the share sale transaction the defendant’s employment was terminated. To deal with the issues surrounding termination of the defendant’s employment the parties entered into a deed of release dated 24 April 2007 and an amending deed dated 29 June 2007.

2 The plaintiff claimed from the defendant moneys allegedly payable by him in accordance with the provisions of the deeds. The defendant also claimed that he was misled by statements made by officers of the plaintiff concerning the payment of his accrued entitlements and that those statements induced him to sign the amending deed on 29 June 2007.

3 The issues for determination were:

1. The obligations of the defendant to pay the plaintiff the moneys as provided for in the deeds.

2. The obligation of the plaintiff to pay the defendant annual leave entitlements as provided for in the deeds.

3. Whether there was conduct on the part of the plaintiff that misled or deceived the defendant so that he was induced to sign the amending deed, and

4. The extent, if any, of the loss suffered by the defendant as a result of his signing of the amending deed.

ISSUE 1 – The Defendant’s Obligations

4 The deeds provided for payment to the defendant of substantial sums in cash or through the provision of securities. One such amount was expressed to be a bonus of $500,000. The amending deed provided for the defendant to pay the plaintiff $18,421 for legal expenses and $315,000 for payroll tax and workers compensation premiums.

5 The provisions of the deed concerning the time for payment of these sums were difficult to comprehend. On the interpretation adopted by the defendant these sums were not payable until the debt security provided by the company known as 3HX Pty Limited was paid or, alternatively, payment was to be made within seven business days after the 3HX debt security was paid. The evidence established that the debt security was paid on 9 October 2009, so that on the defendant’s argument that became the date for payment or, alternatively, the time for payment expired at the close of business on 20 October 2009.

6 The interpretation adopted by the plaintiff arose under cl 3.8 of the amending deed. The clause provided that if the plaintiff did not exercise its right to set off the sums payable by the defendant against those payable to the defendant, those sums constituted a debt to be paid by the defendant within seven business days. The right to set off was not exercised by the plaintiff and it was therefore argued that since the plaintiff’s financial obligations were met on 27 June 2007 the debt was payable within seven business days thereafter.

7 Interpreting these conflicting provisions of the amending deed in a manner contrary to the interests of the plaintiff, I concluded that the payments agreed to by the defendant were in fact payable when the 3HX debt security was paid, namely 9 October 2009. Thus to the extent that these amounts were not set off against moneys allegedly owed to the defendant, the payments constituted a debt due and payable by the defendant to the plaintiff.

8 The defendant’s affidavit of 21 May 2009 alleged that the payments were made by 3HX to the plaintiff and debited to his loan account with 3HX and to that of Slick Solutions Pty Limited, the trustee of his superannuation fund. He claimed that these payments were made in respect of the claims now brought by the plaintiff. I have not considered these contentions because they were not raised in the defence. They were not pursued in the course of the hearing and they were not referred to by the defendant’s counsel in submissions.

ISSUE 2 – The Annual Leave Payment

9 There was no dispute that the plaintiff did not pay the defendant the sum of $21,000 agreed to be the value of untaken annual leave at the time of the termination of his employment. This was a payment provided for in the deeds. The plaintiff said this was because an arrangement was entered into with the consent of the defendant under which this obligation was taken over by 3HX by whom the defendant was employed following the share sale.

10 Exhibit D was the executive service agreement dated 29 June 2007 entered into between the defendant and 3HX. In cl 7 of that document the parties acknowledged the prior employment of the defendant by the plaintiff. Clause 6.5 deemed his service with 3HX to have commenced from 7 July 2005 for the purposes of calculating his statutory leave entitlements.

11 The defendant’s claim was that he was owed four weeks annual leave by the plaintiff valued at the agreed sum of $21,000. It was not disputed that his statutory annual leave entitlement was four weeks. There was evidence of the defendant and Mr Quinn, a director of the plaintiff, that on the completion date 29 June 2007 the process for settlement of the share commenced at 5pm and continued until the early hours of the following morning.

12 Over this period negotiations continued and it was apparent that the amending deed and the executive service agreement were amended prior to their execution on that date. Thus it appeared to me that it was entirely probable that those negotiations led to the takeover by 3HX of the statutory entitlements as provided for in the executive service agreement relieving the plaintiff of the obligation to do so.

13 To displace the inference that I have drawn from this material it would be necessary for the defendant to produce evidence that 3HX disputed its obligation to pay the annual leave entitlement to which he now makes claim. Emails were attached to his affidavit that indicated that 3HX in September 2008 questioned its liability for entitlements accrued whilst the defendant was employed with the plaintiff. The emails suggested that ongoing discussion was necessary between the plaintiff, the defendant and 3HX to resolve the situation.

14 There was no evidence of the outcome of these discussions. However, a document, exhibit E, that was agreed to be a 3HX document, recorded the defendant’s employment entitlements. It noted that fifty-six days of annual leave accrued to 30 June 2008. On the basis that by that date the defendant had been employed by 3HX for one year in respect of which his entitlement would have been twenty-eight days, it indicated that 3HX did in fact credit him with the entitlement to annual leave for a second year. Thus it would appear that 3HX acknowledged that it was contractually bound to honour his statutory leave entitlement and that with his consent the defendant’s right to be paid that entitlement, notwithstanding that it arose during his term of employment with the plaintiff, was transferred to 3HX.

15 The defendant’s claim for $21,000 in respect of annual leave entitlements is rejected.

ISSUE 3 – Misleading and Deceptive Conduct

16 The defendant claimed $253,843 for unpaid bonuses and $13,722.77 in reimbursement of overseas travel expenses. In response to these claims the plaintiff relied upon cl 6 of the deed of release that was unchanged by the amending deed. This provision was very broad in its terms. It released the plaintiff from claims arising out of employment by the plaintiff. The release included but was not limited to claims in respect of annual leave entitlements and bonus payments.

17 Clause 6.2 entitled the plaintiff to rely on the provision of the release as a bar to any claim which may be made or brought by or on behalf of the defendant.

18 The defendant claimed that he entered into the deed on the understanding that the plaintiff had authorised payment to him of his entitlement to bonus payments and reimbursement of travel expenses. He said representations to this effect were made by various officers of the plaintiff.

19 He said that Michael Halliday in April 2007, prior to his signing the deed of release, informed him that his entitlements would be paid in full. He said that in June 2007 before he signed the amending deed, the chief executive officer, Mr Hart, showed him a sheet of paper that listed his entitlements except for annual leave for one year. He said Mr Hart agreed to have this corrected and told him that he would need approval from David Quinn to effect payment.

20 The defendant said he had a conversation with Mr Forsythe, an officer of the plaintiff, prior to 27 June 2007, on whether the amounts claimed had been paid. Mr Forsythe also stated that he needed Mr Quinn’s approval.

21 About two days prior to 27 June 2007 the defendant said he met Mr Quinn while waiting for a lift. Mr Quinn, he said, told him that he had approved payment of the defendant’s “back entitlements” and that they should have been paid.

22 Apparently there was no discussion of what these back entitlements were. The defendant claimed that he proceeded to sign the amending deed on the understanding that his entitlements had been paid in full to that date.

23 I rejected this claim for the following reasons.

24 The evidence was that the negotiation of the amending deed extended over a lengthy period on 27 June 2009. The defendant was very conscious of his claimed outstanding entitlements. He had been pursuing them since April 2007. It appeared to me improbable in those circumstances that he would have proceeded without confirmation of payment or negotiation to compensate him for those entitlements in some other fashion.

25 The defendant relied upon a document numbered 28 to his affidavit of 21 May 2009 as an admission by the plaintiff of the amounts he now claimed to be owed to him. The document included a figure of $253,843 for bonuses accrued from 2006. It included a figure of $13,722.77 for outstanding travel expenses. The document was headed “3HX Pty Limited General Ledger”. It was dated 2 August 2007, that is, after the date of completion of the sale of shares in 3HX by the plaintiff.

26 Mr Quinn said that all of the plaintiff’s accounting records were transferred to Centric on 27 June 2007 and the plaintiff had no further input into them. It was therefore not established that document 28 was a document of the plaintiff and could not be accepted as an admission by the plaintiff as to any of the calculations set out on that document.

27 Mr Quinn denied any conversation in the terms alleged by the defendant. He agreed that he did have a conversation with him in a lift prior to completion and that he had a number of conversations with the defendant in the days leading up to 27 June 2007. He said that all those conversations dealt with money but not with money that the defendant was seeking to be paid to him, rather they concerned money that the plaintiff was seeking that the defendant pay to it. He agreed that he told the defendant that the deed of release was created for the purpose of wrapping up all of the issues relating to his employment entitlements.

28 The deed of release was clear in the terms of the release that was being granted. There was no suggestion that the terms were misleading or that they were misunderstood by the defendant.

29 No evidence was provided by persons who could confirm the defendant’s claims. They included Mr Hart who apparently also transferred to the employment of 3HX, Mr Forsythe who allegedly recorded the handwritten figures appearing on document number 28 and the solicitor who accompanied the defendant at the time of negotiation of the amending deed on 27 June 2007. There was no evidence from any officer of the purchaser of the shares, Centric, or any officer with 3HX to explain the calculations in the document numbered 28.

30 In the absence of evidence that might have been available to the defendant to support his claims of misrepresentation, I preferred the evidence of Mr Quinn that the conversation alleged by the defendant did not take place.

31 I was not satisfied that the defendant was misled or deceived into signing either the original deed or the amending deed.

ISSUE 4 – Loss or Damage

32 Had I accepted the defendant’s claims, he faced the problem of quantifying his losses. In this case it was not simply a matter of accepting that the loss was the amount that he claimed.

33 Firstly, the defendant has not established an entitlement to a bonus in the sum of $253,843 or to travel expenses in the sum of $13,722.77. There was no evidence provided to support the amounts claimed. At best relying upon his contract of employment with the plaintiff, he could establish a provision in that deed for a minimum annual bonus payment of $100,000.

34 Secondly, as submitted by senior counsel for the plaintiff, it was apparent that the deeds were the subject of extensive negotiations. Substantial sums were paid to the defendant pursuant to their terms. The evidence left open the question of whether the plaintiff would have proceeded with the transaction at all or in the manner provided for in the deeds if called upon to pay the further sums ranging from $100,000 to $270,000.

35 The loss therefore was not established and the cross-claim failed for this reason also.

Interest and Costs

36 The plaintiff claimed interest on two alternative bases. Firstly from the commencement of proceedings in the sum of $41,561.94 or alternatively from the date of the payment of the debt security on 9 October 2009 in the sum of $657.71.

37 These proceedings were commenced in relation to a debt that was not payable until the debt security was paid. The plaintiff argued that having received evidence of payment of the debt security on 9 October 2009 it abandoned that part of its claim that alleged that the defendant himself delayed in obtaining payment of the debt security, frustrated the terms of the agreement and thus obstructed the performance of the terms of the agreement which would have triggered his obligation to pay the debt.

38 In my view having abandoned that part of its claim I do not think that the plaintiff is entitled to revive it for the purpose of calculation of interest.

39 Further, although the payments were payable on 9 October 2009 in my view reasonable commercial relations would have allowed the defendant a sensible period within which to pay. In those circumstances an award of interest was not warranted.

40 I make similar observations in relation to the plaintiff’s application for costs of its claim for these payments. The plaintiff also relied upon the argument that the defendant obstructed it in obtaining the amounts it claimed and there is some warrant to the suggestion that the proceedings were commenced prematurely. In those circumstances it appears to me that it is appropriate that each party pay their own costs of the plaintiff’s claim.

41 As far as the cross-claim was concerned, the defendant resisted an application for costs claiming that the cross-claim was brought by way of set off and that he was hampered by the absence of information from the plaintiff in establishing his claim. There was no suggestion before me that the defendant’s claim was in any way prejudiced by the absence of documentation. He pursued the claim to the end and he failed in his claim. In those circumstances he will be required to pay the plaintiff’s costs of the cross-claim.

42 The orders therefore are as follows.

1. Verdict and judgment for the plaintiff on the plaintiff’s claim in the sum of $333,421.

2. Each party is to pay its own costs of the proceedings involving the plaintiff’s claim.

3. Verdict for the cross-defendant on the cross-claim.

4. The cross-claimant is to pay the cross-defendant’s costs of those proceedings.

5. The exhibits are returned.

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